Misery Index

What is the Misery Index?

The misery index helps determine how the average citizen is doing economically and it is calculated by simply adding the Annual inflation rate to the Seasonally Adjusted unemployment rate. The chart below includes inflation, unemployment, misery index and who was President.

Since both high unemployment and high inflation are major factors to the average wage earner, it’s a quick and dirty metric to gauge the health of the economy because as inflation rises the cost of living increases and as unemployment rises more people cross the economic line into poverty.

Unfortunately, although data for the annual inflation rate is available back to 1914 (the CPI index began in 1913) data for the misery index is only available back to 1948 due to the lack of unemployment numbers prior to 1948.

The original Misery index was created by economist Arthur Okun during the Johnson administration in the 1960’s, not by Robert Barro as some people mistakenly believe. Barro created the “Barro Misery Index” (BMI) in 1999, which also includes interest rates and Gross Domestic Product (GDP) trend into the mix.

Approximately ten years later Steve Hanke updated Barro’s work by applying it to other countries outside the United States. Hanke’s modified misery index uses unemployment, plus inflation as Okun did but then adds interest rates, and then subtracts the year-over-year percent change in per-capita GDP growth. Assuming that high interest rates also add to the “Misery” but growth in GDP reduces the misery.

Interestingly, when the original misery index was conceived by Okun the index was actually quite low by recent standards.

Misery Index Current Commentary:

Misery Index 2016-18:

The misery index as of December 2018 (based on the most recent official government inflation and unemployment data for the 12 months ending in November) is at 5.88% down from6.22% last month and even below the 5.98% in September. It is well below the 6.60% in August and the 6.85% and 6.87% in July and June respectively.

Note: During times of deflation (i.e. negative inflation) the misery index might not be truly representative of the actual misery of the general population. Although falling prices can help alleviate suffering, deflation does not necessarily guarantee “good times” if that were the case the “Great Depression” would have to be renamed “Happy Days” since prices fell 9% in 1931 and then another 10% in 1932.

See: The Great Depression The Deflationary 1930′s– 1930-1939. Even though the “Roaring 20’s” has the reputation of being a fun time combined with massive deflation not everyone benefited. Those in the cities prospered but farmers suffered severely as the prices of their produce fell drastically in 1921 and 1922. This was made worse by the fact that a much larger portion of the population were farmers. In 1920, 27% of the workforce was dedicated to farming, but by 1990 farming had become much more mechanized so fewer farmers were needed so it dropped to only 2.6% of the population were farmers. See The “Roaring Twenties” Inflation and Deflation 1920-1929 .

Also during the 2008-2009 crash falling Real Estate and Stock prices increased suffering rather than alleviated it.

The Misery index bottomed at 5.06% in September 2015 but then began increasing again leading up to the election in 2016 and then began falling again immediately after the election.

Misery Index Chart

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Misery Index in 2018:

Jan

Feb

Mar

Apr

May

Jun

Jul

Aug

Sep

Oct

Nov

Dec

6.17%

6.31%

6.46%

6.36%

6.60%

6.87%

6.85%

6.60%

5.98%

6.22%

5.88%

Misery Index in 2017:

In 2017 the Misery index fell from a high of 7.30% in January to a low of 6.03% June and July before climbing a bit to 6.21% in December.

Jan

Feb

Mar

Apr

May

Jun

Jul

Aug

Sep

Oct

Nov

Dec

7.30%

7.44%

6.88%

6.60%

6.17%

6.03%

6.03%

6.34%

6.43%

6.14%

6.30%

6.21%

Misery Index in 2016:

In 2016 the Misery index hovered between a low of 5.72% May and a high of 6.77% in December. but generally trended higher than in 2015.

Jan

Feb

Mar

Apr

May

Jun

Jul

Aug

Sep

Oct

Nov

Dec

6.27%

5.92%

5.85%

6.13%

5.72%

5.91%

5.74%

5.96%

6.46%

6.54%

6.29%

6.77%

Misery Index in 2015:

The misery index was sporadic throughout 2015. It began in January at 5.61% and fell to 5.20% by April. Then it began rising again to 5.47% in July. It fell to 5.06% in September but then rose to 5.73% by December.

Jan

Feb

Mar

Apr

May

Jun

Jul

Aug

Sep

Oct

Nov

Dec

5.61%

5.47%

5.43%

5.20%

5.46%

5.42%

5.47%

5.30%

5.06%

5.17%

5.50%

5.73%

Misery Index in 2014:

The misery index fell during 2014 as the inflation rate plummeted due to falling energy prices during the 2nd half of the year. Unemployment also fell considerably based on Bureau of Labor Statistics numbers and even fell based on Gallup numbers (although not as sharply) and the Gallup Head Says Unemployment Rate is “A Big Lie”.

Jan

Feb

Mar

Apr

May

Jun

Jul

Aug

Sep

Oct

Nov

Dec

8.18%

7.83%

8.21%

8.25%

8.43%

8.17%

8.19%

7.80%

7.56%

7.46%

7.12%

6.36%

Misery Index in 2013:

In 2013 the Misery index was still in the moderately miserable range . It was slightly below the position at the end of the Bush 1 term and similar to the middle of both of Bush 2 terms. The misery index began the year at 9.49% and finished the year at 8.20%. Although government numbers indicate that both unemployment and inflation are falling non-government numbers indicate both inflation and unemployment are higher than reported by the government.

During the Bush 2 term, the misery index started at 7.93% then peaked at 11.40% and then went back to 7.39% averaging 8.11% over 8 years. Obama’s first term began at 7.83% (almost identical to where Bush began) and then peaked at 12.62% before declining to current levels, averaging 9.57% so far. However, an argument can be made that the initial 7.83% was artificially low due to the collapsing stock market and related deflation. Perhaps a more representative number of actual misery would be between 10% and 11%. But the misery number is still historically high.

The Misery Index and Politics

Historically, a high (or climbing) misery index has been a political football resulting in a change of Presidents while a low (or falling) misery index resulted in reelection. Eisenhower (R) was reelected in November 1956 with a misery index of 6.53%. Johnson (D) ended with a misery index of 8.13 in November of 1968 and Humphrey (the Democratic candidate replacing Johnson) lost to Nixon. Early in the Nixon (R) administration the misery index climbed to a high of 11.67% in December 1970. From there through the election in November 1972 the index was falling and Nixon was re-elected. As a matter of fact, according to Wikipedia, “Emphasizing a good economy and his successes in foreign affairs, such as ending American involvement in Vietnam and establishing relations with China, Nixon won the election in a landslide.”

However, the Misery Index bottomed two months later at 8.55% and from there the misery index climbed drastically. Finally, Nixon resigned when his misery index climbed to 17.01% in July of 1974. Although Watergate was the trigger, one has to wonder if the economy was doing well would Watergate have been such an issue?

Gerald Ford (R) took office in September 1974 with the index at 17.85%. It peaked at 19.9% a few months later and then fell steadily as his term progressed to 12.66% in December 1976 but he still lost. Perhaps if his term had been slightly longer (i.e. he had a full term) he might have been reelected.

Jimmy Carter (D) quoted the misery index extensively during his 1976 Presidential campaign to unseat Ford, even though Ford actually presided over a declining Misery index. Carter on the other hand presided over an increasing misery index of his own, starting his term at 12.72% and increasing to levels well above Ford’s highs.

Carter’s misery index peaked at 21.98% in June of 1980. His misery index was still above 20% come November 1980, so Reagan (R) was able to use Carter’s own words and the misery index against him in the following election and make Carter a rare one-term President.

Reagan took office in January 1981 with a misery index of 19.33%. By November of 1984 the misery index had fallen steadily to 11.25% and Reagan was reelected. By November 1988 the misery index was 9.55% and so the Republicans were able to elect Bush 1 (R) in the hopes of more prosperity to come. But four years later (November 1992) the misery index was higher at 10.45% and Clinton was elected.

In January the index stood at 10.56%. By November 1996 it had fallen to 8.66% and Clinton (D) was reelected. By November 2000, the misery index still stood at 7.35% and Bush 2 (R) was elected. This election and the Nixon win over Johnson are the only two elections in the history of the index where it was relatively low when parties changed. But in both cases it was climbing fairly steeply prior to the election. So it is possible that people felt they were becoming worse off. During Bush 2’s first term, the misery index rose slightly to 8.92% by November 2004 and the election was very close. Resulting in Bush 2 barely getting re-elected.

In July of 2008, toward the end of Bush’s 2nd term the misery index climbed to 11.40% and by September of 2008 it was still 11.14%. Even though it had fallen to 7.87% by November the public mood was still miserable due to the stock market crash and unemployment continued to rise. The deflationary collapse was due to a massive contraction in the money supply due to a stock market crash rather than any positive economic factors.

In effect the crashing stock market led everyone to feel poorer (and most were poorer as the value of their house and any investments had declined precipitously) thus the market trumped the Misery index itself. So the social mood was ready for a change in political parties. Worldwide this same phenomenon appears to hold as well, this seems to be confirmed by the elections in both France and Greece where their economies were faltering and the seated Presidents were both voted out.

In the 2012 election apparently Obama was seen as presiding over a falling Misery index and so he was reelected. In the 2016 election the misery index had bottomed in 2015 at 5.06% and had been climbing reaching 6.29% by November this was combined with an increase in Civil unrest as evidenced by “Black Lives Matter” activities. A recent Gallup poll revealed that Americans are worried about race relations. 42% in U.S. worry a “great deal” about race relations up from 17% in 2014. Thus Hillary Clinton was defeated and Trump was elected.

Which Party Has a Better Misery Index Record?

With all the talk about the misery index in politics it begs the question: Which party has performed better? Simply looking at the chart it is possible for both parties to say they have done better, each party has had it’s good times and bad times. Looking at the overall numbers however, Democratic Presidents have done slightly better with an average overall misery index of 8.9% while Republicans have had an average overall misery index of 9.8%.

But since Congress actually makes the laws, it may be more accurate to include the political make up of congress to get a more accurate indication. Or perhaps looking at the last 3 years of each presidency would be more representative of a particular president’s policies.

Since individual states’ political parties have a more direct influence on their economics… See Unemployment Rates by State to see which political party has had the best effect on each state’s unemployment rate.

Definition of Misery Index

The misery index is defined as, a measure of the economic well-being of the country, which is calculated by taking adding the unemployment rate and the inflation rate.

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Comments

Is the data given at the end of your article seasonally adjusted? Also what made you start your calculation in 2009 after the peak of the great recession in 2008? You also mention how others have improved the way we should calculate the misery index which method do you think is the most accurate representation?

Melanie,
Yes the traditional Misery Index uses the Seasonally adjusted Unemployment rate but the inflation rate is annual so it isn’t seasonally adjusted. As far as starting our calculations in 2009 the chart goes all the way back to 1948 so we have the data that far back since that is when the government started tracking unemployment. The table does only go back to 2009 since that is when we started publishing it but if you what to see what it was like before 2009 you can look at the chart. As far as a personal preference, I think that weighting the unemployment rate higher than inflation might be a bit better representation of actual misery.

How does our money supply nearly double in the last 5-6 years (tradingeconomics.com) and inflation stay at 1.13%? I was under the impression that inflation was just an increase in the money supply and if ours just about doubled why don’t the inflation numbers indicate it?

Excellent Question because it shouldn’t work that way. There are a couple of possible explanations. The first is that the money supply didn’t really expand. As you know statistics can be made to say a lot of things. So a lot depends on how you measure the money supply and when you start measuring. An argument can be made that you should include the stock market in the “money supply” since stocks are considered by most people as part of their wealth and are readily convertible to cash. So they are valuable and fairly liquid. If that is the case, the money supply contracted massively during the 2008 crash. So over the last 6 years the money supply has expanded again as the stock market came back but stocks are still just slightly above their 2007 peak. So has the money supply expanded or is it just back to 2007 levels? Also has all the inflation gone into the stock market leaving the items measured by the CPI only up a little over 1%?

The second issue is velocity of money and the money multiplier if the money is just sitting in the banks as “reserves” it is not being multiplied and so it isn’t inflationary. Once the banks start loaning more of it out at greater multiples (via fractional reserve) inflation will pick up.

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